AMP pincered by a decade of change

ANALYSIS

Few sectors have been impacted as severely as the financial services industry, and financial planning in particular, when it comes to the vicissitudes of Government policy changes and AMP Limited has been a particular victim.

As the AMP Limited share price clawed its way along at $1.02 last week, it was easy to reflect on poor company decision-making five years’ ago around buyer of last resort (BOLR) contracts without reflecting that those poor decisions were heavily influenced by Government decisions over the preceding five years.

In fact, AMP and other financial planning licensees were impacted first by Future of Financial Advice (FoFA) regime which became mandatory from 1 July, 2013, then the advent of the Financial Adviser Standards and Ethics Authority (FASEA) regime in 2017/18 and by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry established in December, 2017.

It was that combination of circumstances which generated the somewhat panicked 2018 AMP Limited board memo which pointed to the company’s $1.2 billion BOLR exposure on the possibility of an “adviser run” on those contracts as advisers sought to exit the industry.

Other major licensees such as IOOF Limited had also been required to quickly adjust their systems and practices, but in doing so they did not carry the burden of extensive BOLR arrangements often underwritten by AMP Bank.

The AMP board memo was, in fact, a reflection of the fact that while AMP had sought to adjust to the post-FoFA legislative and regulatory realities it had simply not adjusted fast enough. It was also a reflection of the fact that the multiples contained in the BOLR contracts no longer reflected reality.

It is worth noting that AMP was then the largest financial advice player in the market with the most deeply-entrenched pre-FoFA commercial model based on commissions and product distribution via an expansive adviser distribution network.

All of that had to change from 2013 when the FoFA legislation outlawed commissions and volume-based payments. Evidence provided to the Royal Commission suggested that while some change occurred within AMP, it had sought to ringfence some elements of conflicted remuneration.

The market recognised AMP’s failure to adjust because its share price dropped from $5.07 in the early months of 2018 to around $2.13 a year later and has not been north of $2 since 2019.

It is a sorry tale for AMP which in 2001 boasted a share price of $15.32.

In the time it has taken for AMP to move past the Royal Commission and for the BOLR class action to make its way through the Federal Court, AMP has completed the sale of its life insurance business to Resolution Life, the sale of AMP Capital to Dexus and most recently the sale of its SuperConcepts SMSF business to private equity.

The question on the minds of AMP’s major shareholders must be whether today’s much smaller company can meet its supposed potential.